Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics MACRO > Financial Markets, Monetary Policy, Fiscal Policy, Supply-Side Policies, & Globalisation > Flashcards

Financial Markets, Monetary Policy, Fiscal Policy, Supply-Side Policies, & Globalisation Flashcards

1
Q

what is the foreign exchange market ?

A

commonly known as forex, FX, or currency market, is a global platform for trading currencies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

what is debt ?

A

what a firm owes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

what is equity ?

A

all physical and financial assets owned by a firm

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what is the formula for yield ?

A

(annual coupon payment/ current market price) x 100

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

what are commercial banks ?

A

financial institutions that make profits by selling banking services to their customers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what are investment banks ?

A

assist in raising finance for companies, financial institutions, governments, and organisations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

what services do commercial banks offer ?

A
  • loans to individuals, consumers and businesses e.g. mortgages
  • provide safekeeping and returns for savings
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

what services do investment banks offer ?

A
  • they issue shares and bonds
  • provide advisory services for companies undergoing mergers or acquisitions
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

what is liquidity ?

A

the ease in which assets can be turned into cash

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

what is the central bank ?

A

the government’s bank that issues currency and controls the supply of money in the economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

what are the 4 main roles of the central bank ?

A

. lender of last resort

. the governments bank

. regulate the banking industry

. monetary policy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

what is the lender of last resort ?

A

Commercial banks are able to borrow from the Central Bank if they run into short-term liquidity issues.

Without this help, they might go bankrupt, leading to instability in the financial system and a potential loss of savings for many households

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

what does it mean by the central bank, regulating the banking industry ?

A

due to a high level of asymmetric information in financial markets, it requires that commercial banks be regulated in order to protect consumers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

what is the monetary policy ?

A

the Central Bank taking action to influence interest rates, the money supply, credit and the exchange rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

what is the monetary policy used to help the government achieve ?

A

macroeconomic objectives

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

what is the monetary policy committee (MPC) ?

A

a committee responsible for setting the base interest rate, in order to meet the target rate of inflation (2% CPI)

they also discuss whether quantitative easing is necessary

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

what is quantitative easing ?

A

occurs when the central bank purchases bonds (form of a loan) from commercial banks, to increase the money supply

in theory:
commercial banks lower lending rates → consumers and firms borrow more → consumption and investment increase → AD increases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

what is expansionary monetary policy ?

A
  • reducing interest rates
    -increasing quantitative easing

aiming to boost economic growth

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

what does the components of AD, have to do with monetary policy ?

A

changes to monetary policy can influence any of these components - and often several of them at once.

Expansionary monetary policy aims to shift aggregate demand (AD) to the right

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

what are hot money flows ?

A

when the exchange rate appreciates/ increases - exports are more expensive and imports are cheaper, resulting in a fall in AD.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

what is more predictable, monetary policy or fiscal policy ? ,why?

A

fiscal policy

because households may not borrow more money if their confidence in the economy is low - irrespective of how low interest rates go.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

what are the 4 monetary policy actions ?

A

interest rates

exchange rates

money supply

forward guidance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

what is the use of exchange rates ?

A

to reflect the value of one currency relative to

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

what is the bank rate ?

A

the interest rate set by the bank

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

what are the factors to be considered when setting the bank rate ?

A

economic expansion (increases AD)
&
economic contraction (decreases AD)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

what are the two main instruments if the monetary policy ?

A
  • adjustments to the interest rates
  • quantitative easing
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

what are the effects of a decrease in interest rates on consumption ?

A

loans are cheaper → consumers borrow more → consumption increases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

what are the effects of an increase in interest rates on consumption ?

A

loans are more expensive → consumers borrow less → consumption decreases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

what are the effects of a decrease in interest rates on inflation ?

A

buyers borrow more → asset prices increase → households with assets feel wealthier → consumption increases → AD increases → inflation increases

30
Q

what are the effects of an increase in interest rates on inflation ?

A

buyers borrow less → asset prices decrease → consumption decreases → AD decreases → inflation decreases

31
Q

how will the the monetary policy committee lower inflation ?

A

increasing interest rates

32
Q

historically, what has a lack of regulation of financial activities led to ?

A

risky loans

poor investments

banking losses

33
Q

what are the reasons banks fail ?

A

high risk loans

regulation violation
(Banks can fail if they do not follow regulatory requirements or operate within the recommended guidelines)

asymmetric information

34
Q

what is the fiscal policy ?

A

the use of government spending and taxation (revenue) to influence aggregate demand in the economy

35
Q

what is expansionary fiscal policy ?

A

reducing taxes

increasing government spending

subsidys for firms

36
Q

what is contractionary fiscal policy ?

A

increasing taxes

reducing government spending

indirect tax on firms

37
Q

what is the main reason fiscal policy is used ?

A

to help the government achieve their macroeconomic objectives

(low and stable rate of inflation, economic growth)

38
Q

what are some macroeconomic impact of fiscal policy ?

A

*Income tax cuts can influence labour to be more productive

*Tax cuts can encourage firms to increase output or be more entrepreneurial

*Subsidies can lower costs of production in the industry, leading to higher output

39
Q

what is the influence of government spending on economic activity ?

A

Government spending is an injection and increases economic activity

40
Q

what is the influence of taxation on economic activity ?

A

Taxation is a withdrawal and decreases economic activity

41
Q

what are automatic stabilizers ?

A

are automatic fiscal changes that occur as the economy moves through stages of the business/trade cycle

42
Q

what are the effects of automatic stabilizers in a recession ?

A

there will automatically be lower tax revenue

-due to the nature of progressive taxation - as incomes fall households are taxed less

43
Q

what are the effects of automatic stabilizers in a boom ?

A

there will automatically be higher tax revenue

-due to the nature of progressive taxation - as incomes rise, households are taxed more

44
Q

what are the main sources of government revenue ?

A

taxation

sales of goods and services by govern met owned firms

The sale of government owned assets (Privatisation)

45
Q

what are current expenditures ?

A

daily payments required to run the government and public sector

46
Q

what are capital expenditures ?

A

investments in infrastructure and capital equipment

47
Q

what are the main reasons for government intervention ?

A

support firms
correct market failure
support poorer households
correct government revenue

48
Q

what are the two main uses of taxes ?

A

reduce the consumption of demerit goods

redistribution of income (from rich to poor)

49
Q

what is a progressive tax system ?

A

As income rises, a larger percentage of income is paid in tax

50
Q

what is a regressive tax system ?

A

As income rises, a smaller percentage of income is paid in tax

51
Q

how is a budget deficit financed ?

A

through public sector borrowing

  • This borrowing gets added to the national debt (the cumulative total of past government borrowing which has to be repaid with interest)
52
Q

what is crowding out ?

A

When governments borrow money, they do so by selling bonds (treasury bills) to people who want to save

this may be a financial strategy to pay back national debt

53
Q

why does national debt limit future growth ?

A

future generations will have to pay off the loans, which have a rising interest rate

54
Q

what is the aim of supply side policies ?

A

to shift the long run aggregate supply curve (LRAS) outwards, increasing the productive potential of the economy.

55
Q

what are the two categories of supply-side policies ?

A
  • interventionist policies
  • free market policies
56
Q

what are the main goals of supply-side policies ?

A
  • long term growth
  • improving competition
  • increasing labour market flexibility
  • increase international competitiveness
  • increasing incentives
57
Q

how can supply side policies affect macro economic objectives ?

A

economic growth (higher real GDP)

reduce labour costs

reduce average price levels (reducing inflation)

58
Q

how do Supply-side Policies Reduce the NRU ?

A

education & training (higher skilled workforce reduces structural unemployment)

lowering taxes on labour, reduces barriers to employment, reducing frictional unemployment

59
Q

what are the aim of free market supply-side policies ?

A

to free up markets

improve market incentives to increase long run aggregate supply

59
Q

what are some market based policy’s ?

A

reducing income tax

deregulation

decreasing or abolishing the minimum wage to lower cost of production

60
Q

what are the advantages of free market supply side policies ?

A

Improved resource allocation: (increasing the productive capacity of an economy requires more efficient use of its resources, including labour)

No burden on government budget:
(with an emphasis on freeing up markets and allowing market forces to drive efficiency and resource allocation, there is no requirement for government spending)

61
Q

what are the disadvantages of free market supply side policies ?

A

distribution of incomes worsens

time lags

environment damage from infrastructure projects

62
Q

what is the aim of interventionist supply-side policy’s ?

A

to require government intervention in order to increase the full employment level of output

63
Q

what are some interventionalist supply side policy’s ?

A

gov spending on education and training

gov spending on healthcare so that productivity improve

64
Q

what are the advantages of interventionalist supply side policies ?

A

Improvements in living standards:
(Improvements in Infrastructure can raise the quality of life for all citizens)

65
Q

what are the disadvantages of interventionalist supply side policies ?

A

Costs:
they are expensive to implement and are paid for using tax revenue - or increased government borrowing

Time lags:
due to their long-term nature, changes in government often result in changes to budgets and scope of projects and the end result may be less effective than it could have been

66
Q

what is globalisation ?

A

the increasing interdependence of world economies

67
Q

what are the six in causes of globalisation ?

A

economies of scale

technology improvement

increasing number of multinational corporations

deregulation

68
Q

what has increased globalisation ?

A

improvements in technology and the speed of global connections have exponentially increased the level of interdependence nations

69
Q

what are some consequences of globalisation for less-economically developed countries ?

A

employment opportunities

depletion of natural resources

increased power of monopolies

70
Q

what are some consequences of globalisation for more-economically developed countries ?

A

increased trade

increased captial

71
Q

what is a multi-national corporation (MNC) ?

A

a company that has business operations in at least one country other than its home country

Economics MACRO (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions